They will need to get both the politics and the economics right. Few voters understand collateralised debt obligations (CDOs), but most have a very clear sense that this recession was made in the finance sector. They do not see why they or the public services they value should take the big hit in putting the economy back together again.

Yet even if we move much more slowly than the hawks would want, there still needs to be a clear route map to reducing the deficit. But it must not just be effective, but feel fair and do the least possible damage to the rest of the economy or society.

Above all if it is going to pass the political test, it must bear on those who are responsible for the crash and be impossible for them to avoid or evade.

This does not depend on international support in the same way that the proposal floated by Gordon Brown at the G20 does. It is not so much a modern version of the Tobin tax, as a simple extension of good old British stamp duty. It may have a positive effect of damping down speculation, but its main purpose is to raise funds to put the public finances in order.

Chaps is the system used by large banks to make same day, irrevocable payments – with the transfers dominated by the trading activity of large financial institutions. Chaps annual transfers – £74tn in 2008 – are 50 times greater than the UK's GDP (£1.5tn) and more than 15 times bigger than all cash transactions such as debit cards, cheques and ATMs.

A tax of just 0.05% on all Chaps transactions would generate a tax revenue stream of between £30bn and £40bn. Public finance watchers say that this kind of annual income would halve the deficit by 2013/14.

Such a tax would only have a very limited impact on ordinary taxpayers and businesses. Most people only come across Chaps when they move house. It is also just, given that the organisations and individuals who most regularly make very large transactions are the very banks, financial bodies and speculators who have caused the current problems.

Of course we can expect the standard response from the finance sector. They will crank up the old gramophone record about scaring away financial enterprise from the City. Frankly it's time to call their bluff. Much of Britain's finance sector has already returned to the kind of profits that allow large bonuses. The money is there. But even if the tax does have some marginal effect, they cannot argue that a transaction tax would cause more damage to UK society than the current two frontrunners in the fiscal deficit reduction stakes – deep spending cuts or ramped-up VAT.

Cutting spending when the economy is in recession or still in recovery is rarely effective or economically painless. In fact deficits can rise in the wake of cuts because of the extra costs of benefit payouts, healthcare, policing, social services as well as lost tax which all result from the rising unemployment.

VAT is a deeply regressive tax and any rise would hurt those further down the income scale. Most worryingly, it seems very unlikely that large rises in VAT – or income tax for that matter – could occur without damaging consumer confidence and spending power at a time when these crucial factors are in short supply.

Our transaction tax is a very light tax. If it were set at 0.05% it would require a £1,000 payment on a transaction of £2m, the average transaction through Chaps – and only £125 on a typical £250,000 house purchase.

Any new tax raises technical questions about its implementation, particularly in the area of avoidance and evasion, so its introduction would require detailed work. But when the problems of the public finances are approached methodically on the basis of sensible criteria, this looks the best option from a field of less than perfect choices.

The TUC is hosting an economics conference Beyond Crisis: A Progressive Future for the UK Economy, supported by the Guardian, on 16 November. Details of how to attend for free at www.tuc.org.uk/beyondcrisis.